Mortgage Rates Depressed By Fiscal Cliff Fears Near Record Low [Op-Ed]

Commentary | Mortgages rates depressed by fiscal cliff fears are hovering near the all-time record low. According to the Associated Press, mortgage buyer Freddie Mac said Thursday that the average rate on the 30-year loan edged up to 3.32 percent. That’s close to last week’s rate of 3.31 percent, the lowest on records dating to 1971. The average on the 15-year fixed mortgage ticked up to 2.64 percent from 2.63 percent last week, also a record low.

The good news is that low mortgage rates have helped lift home sales this year and the average price for housing is rising slowly. The number of people buying homes has jumped to its highest in six years. This is largely due to the Federal Reserve buying mortgage bonds in September to encourage more borrowing and spending with its so-called QE3 program.

But not all the news is good.

“Concerns about the so-called fiscal cliff have depressed interest rates as demand increased for ultra-safe Treasury securities and insured mortgage bonds from Freddie Mac and other government-backed issuers,” Freddie Mac economist Frank Nothaft noted.

President Obama and Congress keep telling people not to worry about the looming tax hikes and spending cuts scheduled to take place on January 1. The so-called “fiscal cliff” is when the Bush era tax cuts expire and automatic sequester kicks in. They promise to steer the American economy away from the fiscal cliff but so far they are barreling straight toward it.

If we look back at history, you will see that the last time everyone said not to worry was back in July of 2011 when the US Federal government was approaching the debt ceiling and a potential government shutdown. Just like now Congress and President Obama could not reach an agreement. Congress didn’t want to raise the debt ceiling without budget spending cuts. Obama wouldn’t agree to spending cuts without tax increases. Stock markets went up and down depending on the news of the day.

Instead of dealing with the spending issues our supposed representatives agreed to kick the can a little farther down the road. The budget super-committee failed in its duty and the compromise was the automatic sequester that everyone claimed at the time they would never let happen. Then the stock market dropped 15 percent in one week following this decision. The same thing could happen again this time, but potentially worse.

Besides getting a dent in your investment portfolio, the real fear should be that Congress and the President settle for “more of the same” and simply find a way to tax the ultra rich without bothering to fix the real problems. This is what caused markets to dive last time and so far it seems we’re looking for history to repeat itself. Besides the January 1 fiscal cliff the Congressional Budget Office expects we will hit the new debt ceiling in mid-February 2013. Then the sparks will really fly.

In the meantime, if you are a homeowner I’d recommend refinancing your mortgage immediately assuming the numbers make sense. As an example, I’m refinancing myself, going from a fixed 30-year five percent mortgage to a fixed 30-year 3.5 percent mortgage in what is called a “cash-in” refinance. In this case I refinanced while putting more money toward the principal, meaning I’m borrowing a significantly smaller amount. In my case I’ll be reducing my monthly mortgage payments by about one-third. Since the cost of refinancing is about $2300 including points I’ll make my money back very quickly.

When looking at mortgage rates is anyone else considering refinancing?